Income Tax Audit - Due Date, Limit & Section 44AB

In India, a range of laws govern various types of audits such as statutory audit, cost audit, and stock audit. The main purpose of these audits is to make sure that the books of accounts are free from any inaccuracy mentioned in the particular law. Likewise, the Income Tax Act provides provisions for Income Tax Audit under section 44AB. 

As the name indicate tax audit is an inspection of books of account of any profession or business from a viewpoint of tax compliance. It involves the evaluation of income tax returns, income earned, deductions claimed and other provisions under the income tax act.

Objectives of Income Tax Audit

The key objective of an income tax audit is to make sure the taxpayer follows the income tax provisions and rules in a fiscal year. The transactions entered by the taxpayer regarding Receipts, loans, deductions, expenses, etc are according the provisions. The following are other objectives of an audit: 

• To determine/derive/state the requirements of Forms 3CA/3CB & 3CD.
• An appropriate audit for tax purposes will ensure that the account books and other records are maintained properly.
• Account Books accurately reflect the taxpayer’s income and deduction claims are correctly made by the taxpayer.
• Certify proper maintenance and accuracy of account books.
• Certification of account books by a certified auditor.
• A reporting of the observations/ discrepancies of the tax auditor on examination of account books to the IT Department.
• A check for malpractice and fraud by the taxpayer while filing ITR.
• Reporting of crucial details such as loans, advances, deductions, depreciation, and compliances with provisions of the IT Act. This reporting helps the IT Department in two ways. The first is, it facilitates the administration by representing accurate details of accounts before and secondly, verification and calculation of total income, expenditure, and claim of deductions.

Applicability of Income Tax Audit under the provisions of section 44AB

A taxpayer should mandatorily undergo a tax audit of the books of accounts if the sales, gross receipts, or turnover exceeds INR 1 crores in a financial year. The threshold limit of INR 1 crores is proposed to be increased to INR 5 crores with effect from AY 2020-2021 (FY 2019-2020). The following clauses apply to the taxpayer’s cash payment and receipts: 

• Cash receipts are restricted to 5% of the turnover or gross receipts.
• Cash payments are restricted to 5% of the aggregate payments.

Income Tax Audit Report Format

A taxpayer has to file the tax audit report in a prescribed form. The format is provided by the IT Department. The below mentioned are the types of tax audit report along with their applicability: 

• Form 3CA applies to a taxpayer carrying out business or profession and who required getting the accounts books audited under any other law.
• Form 3CB applies to a taxpayer carrying out business or profession and who is “Not” needed to get the accounts books audited under any other law.

However, in either of the instances, the taxpayer has to furnish Form 3CD along with Form 3CA or Form 3CB as applicable.

Process of Income Tax Audit Report Filing

The following are the steps for filing the audit report: 

• The C.A will present the tax audit report online using his/ her login credentials. The C.A must be a person assigned to conduct the tax audit of the organization or individual.
• The taxpayers should mention the particulars of the chartered accountant in their platform.
• The audit report gets uploaded by a practicing C.A. The taxpayer has the option to either reject or accept the report. In case the taxpayer discards the report, the whole process will start over again.

Income Tax Audit Report: Due Date of Filing

The due date of filing the audit report depends on the due date of filing the ITR. The taxpayer has to file the report on or before the due date of filing the ITR. The due date of filing Income Tax Return is 30^th of November of the subsequent A.Y for taxpayers who are engaged in an international transaction during the F.Y. The due date of filing is 30^th of September of the subsequent A.Y for other taxpayers.

Conclusion

As the name indicate tax audit is an inspection of books of account of any profession or business from a viewpoint of tax compliance. It involves the evaluation of income tax returns, income earned, deductions claimed and other provisions under the income tax act. The key objective of an income tax audit is to make sure the taxpayer follows the income tax provisions and rules in a fiscal year.